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Defined Contribution Plans

Answers to the questions most frequently asked about the investment, administration and regulation of Defined Contribution Plans

December, 2001

Table of Contents

Introduction

Saving for Retirement with Defined Contribution PlansWhat are before and after-tax savings?
How do defined contribution plans grow over time to provide benefits to participants upon retirement?
How are employee contribution limits set?
What are the withdrawal provisions in a 401(k) plan?
How do loan and withdrawal provisions impact the risk to the participants?
What types of investment options are typically offered in a defined contribution savings plan?
What are the costs to participants of defined contribution plans?
What are 12b-1 fees?
What are redemption fees?
On average, how have plan participants allocated their defined contribution plan investments?
How should participants allocate their assets?

Managing and Administering Defined Contribution PlansWhat is the employer's role in managing a defined contribution plan?
What are the different ways in which employers set up their investment programs?
What are bundled and unbundled services?
What is the role of the recordkeeper?
What is the role of the trustee / custodian?
How often are investment options priced?

Regulation of Defined Contribution PlansWhat are the primary aspects of defined contribution plan regulation under ERISA?
Does other legislation and regulation affect defined contribution plans?
What is a fiduciary?
What are the basic fiduciary standards for defined contribution and other retirement plans?
What is a prohibited transaction?
Are there exemptions to prohibited transactions?
What sanctions are imposed by ERISA on fiduciaries that do not meet their responsibilities?
How do funding and vesting provisions affect plan administration?
What is the basic nondiscrimination rule?
What is the definition of Highly Compensated Employees (HCEs)?
How does the definition of HCEs relate to defined contribution plans?
Are there additional nondiscrimination tests for 401(k) plans?
What are the minimum coverage requirements?
How are contributions regulated?
What are the minimum distribution requirements?
How are distributions taxed and when do they occur?
What are the additional limitations on distributions from 401(k) plans?
What are some of the distribution requirements in an ESOP?
What are the requirements of an ERISA Section 404(c) plan?
What investment education materials are allowed to be distributed by employers?
Are the requirements for maintaining a qualified defined contribution plan static?

Introduction

Defined Contribution Plans are a critical retirement savings building block for many American workers and their families. The current and future success of these plans is served by understanding how they affect the obligations and risks of both employers and employees.

The Committee on Investment of Employee Benefit Assets (CIEBA) of the Association for Financial Professionals has published this overview in an effort to increase the knowledge base of employees, providers and regulators on these retirement vehicles as they are implemented in the U.S. private sector.

CIEBA is a nationally recognized voice for those corporate financial officers who administer and manage, as fiduciaries, the investment of funds for employee and welfare benefit plans regulated under the Employee Retirement Income Security Act (ERISA). As of Fall, 2001, CIEBA's 120 members collectively managed $1 trillion in assets for 15 million participants including both union and non-union employees and retirees and their beneficiaries.

The Association for Financial Professionals (AFP) in Bethesda, Maryland, formerly the Treasury Management Association, has grown in the past 20 years into a community of more than 14,000 individuals representing a broad spectrum of financial disciplines. AFP turns knowledge into performance by supporting members throughout all stages of their careers with research, continuing education, career development, professional certifications, publications, representation to key legislators and regulators, and the development of industry standards.

CIEBA wishes to thank the Employee Benefit Research Institute (EBRI), the Groom Law Group and Bernstein Research for providing portions of the supporting data in this publication

Table of Contents	Introduction
The Basics of Defined Contribution Plans	Saving for Retirement with Defined Contribution Plans
Managing and Administering Defined Contribution Plans	Regulation of Defined Contribution Plans

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